A STUDY ON

“RATIO ANALYSIS”

With reference to
RASHTRIYA ISPAT NIGAM LIMITED, VISAKHAPATNAM

A Project report submitted

In partial fulfillment of the requirements
For the award of

MASTER OF BUSINESS ADMISTRATION

Submitted by
KATURU.MOUNIKA
Under The Esteemed Guidance Of

MR.CMA.S.JAGADEESH KUMAR
ASSISTANT MANAGER
(FINANCE & ACCOUNTS DEPARTMENT)

ST.MARY’S WOMENS ENGINEERING COLLEGE

(Approved By A.I.C.T.E., Affiliated To JNTU-KAKINADA)

pg. 1
 DECLARATION

I hereby declare that the project work entitled “A STUDY ON RATIO

ANALYSIS ’’ IN RASHTRIYA ISPAT NIGAM LIMITED,
VISAKHAPATNAM. Is a genuine bonafide work done by me at
Visakhapatnam steel plant, and was not submitted to any other
university or published any time before. The project work is completed
by me and has not been previously formed the basis for the award of a
degree/diploma or similar to this.

STATION: VISAKHAPATNAM KATURU.MOUNIKA

DATE:

pg. 2
 ACKNOWLEDGEMENT

I would like to thank each and every employee who has directly or indirectly helped me in carrying out
this project.
I take this opportunity to express my heartfelt thanks to my project guide CMA.S.JAGADEESH
KUMAR(Asst. Manager F&A) for his guidance and suggestions during the progress of my project. I
am thankful to the VISAKHAPATNAM STEEL PLANT, for giving me an opportunity to undertake
my project work.
My special thanks to Mr.O.R.M.RAO, AGM (HRD) of VISAKHAPATNAM STEEL PLANT, for
his valuable suggestions and co-operation throughout the project work.
I want to express my sincere thanks to my Guide CMA.S.JAGADEESH KUMAR for his constant
moral support and valuable guidance in successful completion of my project work.
Finally I would like to thank other faculty members for their extended co-operation and suggestions
which have helped a lot.

(K.MOUNIKA)

pg. 3
 PREFACE

This project report is a presentation of my effort to study the practice of

Financial Management in a public sector enterprise, with reference to

Rashtriya Ispat Nigam Limited, Vishakhapatnam. The report presents the

practical approach in the subject of Financial Management, mainly in the

field of "RATIO ANALYSIS". It intends to provide brief knowledge of

various concepts, Principles, approaches, considerations relevant to this field.

The Project Report has undergone a realistic survey of actual theory and

practices in VSP although there may be much gap to be bridged.

The report has been divided into five chapters and the arrangements of

topics in various chapters have been grouped according to the analysis of the

subject.

KATURU.MOUNIKA

pg. 4
 INDEX

Page no.

CHAPTER -1:

1. INTRODUCTION
1.1 NEED FOR THE STUDY
1.2 OBJECTIVE OF THE STUDY
1.3 METHODOLOGY OF THE STUDY
1.4 LIMITATIONS OF THE STUDY

CHAPTER 2:

2.1 INDUSTRIAL PROFILE

2.2 COMPANY PROFILE

CHAPTER 3:

3.1 THEORETICAL FRAMEWORK OF THE STUDY

CHAPTER 4:

4.1 TABULATION AND ANALYSIS

CHAPTER 5:

5.1 SUMMARY
5.2 FINDINGS
5.3SUGGESTIONS
5.4BIBLIOGRAPHY

pg. 5
 CHAPTER 1

pg. 6
 1. INTRODUCTION
With all my sincere efforts I entered on and selected the subject like ratio
analysis which had its own significance and entity by all means of my through research
in practical as well. It is an oriented opportunity to the best of my level of understanding
outside. As a student of MBA it is a profound prevallege and opportunity to have a step
in the public sector undertaking. Especially, in the steel sector it is situated on the east
coast of Andhra Pradesh. One of best sector in Asia, the all time pride of steel under the
ministry of steel govt. of India. The pride steel having its own standards and quality
either bendable nor flexible. Verginelly called the pride steel under RINL called
Visakhapatnam steel plant.

When I knocked the doors of it backbone of vizag steel. Especially the

finance & accounts departments. I get rid of surprise the deprtment(finanace) means
hardly 30 to 50 people. But after few minutes of my connection in number of
employees of finance, it is more than 600 people outside. Iam confused weather the
department is with professionals or not. To my destiny I concluded on opened my eyes
the department itself, all are professionals of CA, ICWA, CS except few of the staff
( who are non-professionals ), numbering in tips.

When I went inside the depth of the finance department. The department is
not at all centralized. The entire work is spread all over around more than 25 sections.
Each section having own significance and entity. Comparing vaste of financial
accounting rules and regulations as well as the statutory laws applicable too. The
department Having own ethics of maintaining accounting standards. And the audit
conducted every segment of its need for the best of company. The operations of its
accounting is at macro level of economics. which follows, the pay accounts, the cash
section, the operation bill, the cost accounting, the corporate accounting, the purchase

pg. 7
bills and the central exchange section, the sales tax, the sales account, purchase bills 1 &
2, the journal accounts, the corporate finance, the corporate accounts, the freight
accounts, having interrelations it each other.

By its decentralisation of accounting operations. Especially, in the field of

evolution of capital budgeting and working capital management. These two segments of
the heart of the plant. The utilisation of capital budgeting is the backbone of to satnd
behind capital reserves. Because of we Cant predict the unforeseen forces of the
environment and the economy too.

The budget of its own plant is a great hardship to evaluate and allocate. The
allocation based on the contingencies of the all nature of the business. The need of the
allocation of its budget should not delined. The need of funds flow is also a great
hardship to re-consent with the budget and budgeting. The forecasting of budget in
accordance with capital and revenue expenditure based on its ratios and analysis. In
addition the feasibility of its financial allocation having a relevance with inventory
management and opportunity cost. The production and cost effectiveness to scientific
motion of its asking standards of the company.

The crew of the finance department having interrelation and indulged on

every knock of its compress glow. The scientific entities followed by finance
department. All times masterly with the technocrats of its business. The technical
applicability on par with market research coupled with raw-material requirements in the
interest of the finance department. The productivity and production all times wait for the
concurrence of the divisions of the department the usage of taxation and the statutory
obligations of the Indian economy is an opportunity is the hands of the finance
department to be a channel of price fixation of the steel of the Indian economy.

pg. 8
 Steel comprises one of the most important inputs in all sectors of economy.
Economy of any country depends on the strong base of the iron and steel industry. Steel
is a versatile material with multitude of useful properties, making it indispensable for
furthering and achieving continual growth of the economy- be it construction,
manufacturing, infrastructure or consumables. The level of steel consumption’s has
long been regarded as an index of industrialization and economic maturity attained by
country. Keeping in view the importance of steel, the integrated steel plants with
foreign collaborations were set up in the public sector in the post-independence era.

The growth of any organization depends on the overall performance such as

Production, Marketing, Human resource and Financial performance of the organization.
The financial performance of the any organization reflects the strength, weakness,
opportunities and threats of the organization with respect to profits earned, investments,
sales realization, turnover, return on investment, net worth of capital. Efficient
management of financial resources and deliberate analysis of financial results are pre
requisite for success of an enterprise. For the achievement of that, Ratio analysis acts as
one of the major and important tool of effective financial management. Every
organization requires ratio analysis for evaluation of the performances of business .

The need for Financial Planning & Forecasting is the basic acronomy for the
business to strengthen its budgetary control as well as future forecasting through the
means of controllable state of existence. My object of dissertation as a bonafide work
done by me with all my sincere analysis of the Finance Deptt(F&A) of Vizag Steel
Plant, I evaluated all the inner edges of the financial statements by means of effective
and thorough survey with all the sections consolidated data & review and the
predictions too which strengthens the concept of my dissertation by all means.

I humbly act upon the facts of the subject which the entity entirely depends on the
technical feasibility as well as the commercial concepts of the company. In many

pg. 9
occasions these two may not cohesive because of the gap between these two entities of
the business forecasting.

The predictions of the Financial Planning & Forecasting may change due to the
size of the business as well economy as a whole, particularly the competition within the
Steel Sectors, despite of quality or quantity consciousness. In this adventure the
technocrats of the business and the financial analysis of the business, their strategies &
planning are no-man’s land. But the stringency of the accounting standards and the
reviews of audit & investigations and the statutory obligations of the company and the
role of cost controlling department plays a significant role in bridging the gap of these
two as a tool of watch dog of the business.

As of course, the economy is ranging from one ladder to another ladder, the
world is evolving from one step to the heaven or the rays of the ideas of the economists
on scientific lines in all times which alarming human wants & desires. These derives
and the basic instincts of the forecasting to meet demand & supply in a planned
financial means of the company through or by sound effective directions of the
organization as a whole.

The congeniality of my theme of dissertation is to evaluate whether all these are

virtually following or not and most ambitious and courage to what extent this industry
of whether financially planned or not or its forecasting is on, on its right track. Despite
with all thorough investigations of my study, the track is most fertile. There are no
derailments in its track. The speed of its financial administrative machinery of Vizag
Steel Plant is like a rocket in the sky. This is because of the company and its manpower
of the business selected, encoded, launched, organized, decoded & a feed back of its
backbone is through the professionals of CA, ICWA & ACS and MBA Finance
professionals too. More than 600 ideas of the professionals are all times keeping a
watchdog of its success to stand the best Steel Sector of Asia or as a best company in
Steel sector of the world through its backbone of financial professionals.

pg. 10
 With all my eminent survey there is no doubt my dissertation is most fertile, my
thought of selecting the subject is also most eminent to judge this pride of Steel not for
Vizag, is a pride for the economy as a whole by or through my few days of survey. I’m
confident that the company is more fertile in Financial Planning & Forecasting.

BACKGROUND OF ECONOMY:

As far as the world economy is concerned with plenty of unwanted, unstipulated

facts and figures in the era of the book keeping and the accountancy. The reason behind
the economists plea, on the facts that the innovations in the scientific entities of the
father of the book keeping is the accounting standards. As far as the accounting
standards developed with an unique need of the global economy. The American or the
British or the Indian chartered accountants of India/The CMA/ The Institute of
Company secretaries has thoroughly having a sense in the economy to develop with
their inner sense .The globe of the economy is clarified with the evolutions of the audit
and the auditory .The strengths of the economy particularly in the field of business
world may operate to large extent through the cash flow and fund flow of stock
exchange and gold appellate tribunal. The economy and its ups and downs basically
depends up on the rupee value and the segments of industries a s well as the
commodities and the analysis of future forecast as well as the economy of the past,
present and the future of its price Index.

The world itself every fraction of its second is operated with economy in terms of
money .the most valuable essence of operation of money is basically depends up on not
based on the individual tastes or preferences or circumstances or situations but only by
the operations of the economy itself .The frame workers of the economy are the rulers
of the price fixation. the price i9s determined on the basis of not by the rulers only by
the tastes and preferences, demand and supply, wants and desires of the human beings.
The need for the demand and the process of the production and productivity should

pg. 11
match with the emblem of society and expectations. The production of particular
commodity, item or production basically depends on the individual tastes and
preferences and the economy as a whole. The objects of the economy is no doubt to
save the every inner organ of the human kind and the thrust of saving basically depends
up on human itself .So, it is the need of human force to come forward to save the inner
organ or inner demands and the needs of the human resource. The allocation of the
economic development basically depends up on the inner science. The scientific
approaches in the economy in the advent of science and technology had an unique force
for the development of the economy through the forces of The Indian Accounting
Standards .There are number of accounting standards in the era of or in the dictionary of
the institute of chartered accountant of India.

Accounting Standards
 AS 1 Disclosure of Accounting Policies
 AS 2 Valuation of Inventories
 AS 3 Cash Flow Statements
 AS 4 Contingencies and Events Occurring after the Balance Sheet Date
 AS 5 Net Profit or Loss for the period, Prior Period Items and Changes
in Accounting Policies
 AS 6 Depreciation Accounting
 AS 7 Construction Contracts (revised 2002)
 AS 9 Revenue Recognition
 AS 10 Accounting for Fixed Assets
 AS 11 The Effects of Changes in Foreign Exchange Rates (revised
2003),
 AS 12 Accounting for Government Grants
 AS 13 Accounting for Investments
 AS 14 Accounting for Amalgamations
 AS 15 Employee Benefits (revised 2005)
 AS 16 Borrowing Costs
 AS 17 Segment Reporting
 AS 18 Related Party Disclosures
 AS 19 Leases
 AS 20 Earnings Per Share
 AS 21 Consolidated Financial Statements
 AS 22 Accounting for Taxes on Income.
 AS 23 Accounting for Investments in Associates in Consolidated

pg. 12
 Financial Statements
 AS 24 Discontinuing Operations
 AS 25 Interim Financial Reporting
 AS 26 Intangible Assets
 AS 27 Financial Reporting of Interests in Joint Ventures
 AS 28 Impairment of Assets
 AS 29 Provisions, Contingent` Liabilities and Contingent Assets

With all my eminence of thorough study and review in depth as a student I should
know to what extent accounting standards may helpful to the economy as a whole. It is
a profound privilege and opportunity to analyse to what extent the Indian economy
may give a clear picture of its operation through my review particularly a topic like
FINANCIAL PLANNING AND FORECASTING.

I have a confidence to extend my inner knowledge as a student of MBA, it is the

time to explore my organs of knowledge sincerely with convince of confidence and
trust on the thesis which I like to give my presentation in the form of dissertation not
simply as a a word but definitely in the code of conduct and discipline by all means to
be a professional of the economy .I chosen the one of the leader of the Indian steel
Industry particularly Number 1 in the Asian Indian Industry ,the pride established on
the banks of Bay of Bengal. The steel city of Andhra pradesh in Visakhapatnam
popularly known as Ukkunagaram under the emblem of Rashtriya Ispat Nigam Limited
(RINL) as gigantic plant .The dynamism of Indian Steel public sector under ministry of
steel i.e. Visakhapatnam steel plant.

pg. 13
1.1 NEED FOR THE STUDY:

The study concentrates on the financial state of affairs of the company. It

involves the study of Ratio Analysis. It helps to present a broader picture of the
financial position of the Company through ratios. This helps the company’s success in
meeting its requirements and production of steel in India, which has been supported
eventually.

Visakhapatnam Steel Plant is a multi-product steel-manufacturing unit. The

capital employed in a large organization like VSP is huge; so the effective management
of this capital is required. For which continuous monitoring of the various operations is
needed for the organization. So in order to achieve its objectives the organization with
the help of evaluation of ratios should implement the best course of action.

Ratio Analysis is useful in the following ways:

1. Short-term and long-term planning.

2. Measurement and evaluation of financial performance.

3. Study of financial trends.

4. Decisions making for investments and operations.

5. Diagnosis of financial skills.

Thus a detailed study regarding the Ratio Analysis in Visakhapatnam Steel Plant is to be

done to well understand the performance of various Operations identify the shortcoming

in management and to suggest for improvement in those areas.

pg. 14
1.2 OBJECTIVES OF THE STUDY:

The study is focused with the following objectives:

1. To describe the Organizational Profile of RINL (VSP)

2. To discuss the significance of the management of ratio analysis in RINL (VSP);

3. To evaluate the ratio analysis management in RINL (VSP) and

4. To summarize and to suggest for the better performance of RINL (VSP).

pg. 15
1.3 METHODOLOGY:

There are two general types of data primary data and secondary classified on the
basis of purpose of collection or source.

Primary Data:

Primary data are those are collected specifically for the resort situation at hand.
Both exploratory and conclusive research situations necessitate using a high proportion
of primary data. The major sources of primary data include respondents, analogous and
research experiments.

Primary sources usually provide more detailed information than the secondary
source. This is partly because methods of data collection and the tools used can be
tailored more precisely to the informational needs of the researcher. This also
contributes to the flexibility of aliases for the research purpose at hand.

Secondary Data:

Secondary data are already published data collected for purposes other than the
specific research needs at hand. On the basis of location of sources, secondary data
may again be classified as internal or external data.

The data originating with the or available with the organization as a by product
of the MIS or the routine reporting system is called internal data of any given
marketing research problem initial data collected for purpose other than that specific
problem could be termed internal secondary data.

Secondary data generated outside the organization is termed secondary data and
can be collected from a multitude of sources like government publication, trade
association publications, official reports, journals and periodicals and publication of
marketing research agencies.

pg. 16
 Secondary data can also be though from research an agency through this is a
fairly expensive preposition. For the proposed project the secondary will be collected
form annual reports of the company.

pg. 17
1.4 LIMITATIONS OF STUDY:

1. The major limitation is the short span available for the study.

2. Reliability on usage of secondary data is another limitation.

3. Some aspects of financial information are held due to confidentially of the

company.

4. There was no scope of gathering current information, as the auditing has not been
done by the time of project work.

pg. 18
 CHAPTER 2

pg. 19
 2.1 INDUSTRIAL ANALYSIS/PROFILE

Iron had occupied an important place in the service of mankind, not only in India

but also abroad. From time immemorial steel is in dispensable to modern civilization in

peace and war. In order to understand the background of the entry of iron and steel into

the public Sector in India, it would be desirable to trace it briefly, the history of iron and

steel making in India through the centuries.

The development of steel industry in India should be viewed in conjunction with

the type and system of government that had been ruling the country. The production of

steel in significant quantity started after 1900. The growth of steel Industry can be

conveniently studied by dividing the period into pre &post Independence era (or before

1950 & after 1950). The total installed capacity for in-got steel production during pre-

independence era was 1.5 million tones/year, which has risen to about 8 million tones of

ingot by the seventies. This is the result of the bold steps taken by the government to

develop this sector.

The growth in chronological order is as follows:

1830 - Josiah Marshall Health constructed the first Manufacturing plant at

pot in Madras Presidency

1874 - James Erskin Founded the Bengal Iron Works.

pg. 20
1899 - Jamshedji Tata initiated the scheme for an Integrated steel plant

1906 - Formation of TISC

1911 - Tata Iron & Steel Company started production

1916 - TISCO was founded.

1944 - Formation of mysore iron.

1951-56 - First Five-Year Plan

No new Steel Plant came up. The Hindustan Steel Ltd.(HSL) was born on 19th
January, 1954, with the decision of setting up three steel plants each with one million
tone input steel per year at Rourkela, Bhilai and Durgapur, TISCO stated its expansion
programmed.

1956-61 - Second Five-Year Plan

A bold decision was taken up to increase the ingot steel output India to 6 million tones
per year and production at Rourkela, Bhilai and Durgapur Steel Plants started.

1961-66 - Third Five-Year Plan

During the Third five-year Plan the three steel plants under HSL, TISCO & HSCO were
expanded as shown.

pg. 21
 Original Expanded
Steel Plant
(MT/Year) (MT/Year)

Rourkela 1.0 1.8

Bhilai 1.1 2.5

Durgapur 1.0 1.6

TISCO 1.0 2.0

HSCO 0.5 1.0

1966-69 - Recession period:

The entire expansion programs was actively executed during the period.

1969-74 - Fourth Five-Year Plan Salem Steel Plant started.

Licenses were given for setting up of many mini Steel plants and rerolling mills.
Govt.of India accepted setting up two more steel plants in South: One each at
Visakhapatnam (Andhra Pradesh) and Hospet (Karnataka). SAIL was formed during the
period on 24th January 1973. The total installed capacity from 6 integrated plants was
106 MT.

1979 - Annual Plan

The erstwhile Soviet Union agreed to help in setting up the Visakhapatnam Steel Plant.

pg. 22
1980-85 - Fifth-Year Plan

Work on Visakhapatnam Steel Plant was started with a big bang and top priority was
accorded to start the plant. Scheme for modernization of Bhilai Steel Plant, Rourkela,
Durgapur Steel Plant and TISCO were initiated.

1985-91 - Seventh Five-Year Plan

Expansion work of Bhilai and Bokaro Steel Plants completed.
Progress on Visakhapatnam Steel Plant picked-up and the rationalized concept has been
introduced to commission the plant with 3.0MT liquid steel capacity by 1990.

1991-96 - Eighth Five-Year Plan

Visakhapatnam Steel Plant started its production Modernization of other steel plants is
also duly envisaged.

1997-2002 - Ninth Five-Year Plan

Visakhapatnam Steel Plant had foreseen a 7% Growth during the entire plan period.

2002-2007 - Tenth Five-Year Plan

Steel industry registers a growth of 9.9%. Visakhapatnam Steel Plant has high regime
targets and achieved the best of them.

2007-2012 - Eleventh Five-Year Plan

Huge investment plan in infrastructure.

2012 – 2017 - Twelfth Five- Year Plan

The 12th Plan sector target document says that with a GDP growth of around 9%, the
steel consumption is expected to grow 10.3%, translating into a need for an installed
capacity addition of 142.3 mt by 2017.

pg. 23
Out look:

The Steel companies in India are looking up amidst a tough the global
competition when the market is crisis-crossed with a variety of tariff and non-tariff
barriers. The dexterity with which the Indian exporters diversified their markets,
modified the composition of their export basket to suit the changing global demands and
affected reduced production costs by adopting the state-of-the-art technologies provides
ample testimony to the maturity of this industry. From a highly protected inward-
looking enterprise of the pre-liberalization years, it has turned into a modern and
globally integrated industry in an astonishingly short span of time. The economic
reforms have brought with it immense opportunities for market-led growth of this
industry, once a symbol of state control.

On the supply side, deregulation meant access to domestic private capital and
low-cost overseas funds, advanced technology and cheap inputs. On the demand side,
the new policy regime meant opportunities to sell steel in an expanding domestic market
and, most importantly, in the large international marts.

The Indian steel industry is at an important juncture today. The global

strengthening of the market, the potential growth in domestic steel consumption and the
global shortage of critical raw materials like iron ore and scrap have raised issues like
the need to further boost in the production capacities of the plants by modernization,
creation of a strong base of raw materials and industry-specific development of the
infrastructure.

The Government has been fostering a harmonious growth of the industry on the
principles of competitiveness and economic efficiency. It has also paid the highest
attention to help the industry in overcoming structural rigidities within the sector,
remove scarcities of essential inputs, develop infrastructure and remove the market-

pg. 24
distorting forces commonly experienced by the developing countries in the course of
industrialization. The industry is being protected from unfair competition from
domestic and overseas sources.

Innovation:

The Government proposes to bring in a new steel policy. It would define the
framework of government action in each relevant area as also to create ground
conditions for private sector initiative wherever possible. The Ministry of Steel has
strive to provide an effective interface between he industry and the various economic
agencies like government departments, financial institutions, providers of input
materials and essential services and multilateral agencies.

The steel industry’s growth and development trajectory will be heavily dependent
on its ability t mobilize the necessary resources for investment in the coming years. Till
recently, when the steel industry was passing through one of the most turbulent phases,
even the strong companies in the industry would have encountered difficulty in
mobilizing financial resources from the capital market. The perceived risks that
hindered the industry’s resource mobilization efforts are now being replaced by a
general feel good factor. This will help the industry significantly. The turn-around in
the industry has come at a very opportune time. The Indian steel industries continue to
remain focused on the emerging opportunities in the world market. China is offering
great opportunities to the Indian industry. Despite the massive growth in steel output in
China, there will always be opportunities for the Indian exporters. The international
business has to be carried out consistently. Else the market will be lost at the first sign
of a downturn. The Indian steel industry has come a long way from the days of
control and strives to remain globally competitive. This is the age of technology and we
have the requisite resources to the lead in take the steel sector.

pg. 25
MAJOR STEEL AND RELATED COMPANIES IN INDIA:

 Bharat Refactories Ltd.

 Hindustan Steel Works Construction Ltd.

 Jindal Steel and Power Ltd.

 KudremukhIron Ore Company Ltd.
 Manganese ore (India) Ltd.
 Metal Scrap Trade Corporation Ltd.
 Metallurgical and Engineering Consultants India Ltd.
 National Mineral Development Corporation (NMDC).
 Rashtriya Ispat Nigam Ltd.
 Sponge Iron India Ltd.
 Steel Authority India ltd.
 Tata Iron Steel Company.

STEEL SECTOR TRENDS

 India emerged as the fifth largest crude steel producing country in the world in
the year 2006 as against eighth position three years back. India is expected to
become the second largest producer of steel in the world by the year 2015.

 India also maintained its lead position as the world’s largest producer of direct
reduced iron or sponge iron.

 The country is likely to achieve a Steel production capacity of nearly 124 million
tonnes by the year 2011-12.

 194 Memoranda of Understanding (MoUs) have been signed in various States

with a total planned capacity of around 243 million tonnes, and a total proposed
investment of over Rs. 5.15 lakh crore. Major investment plans are in the States
of Orissa, Jharkhand, Karnataka, Chhattisgarh and West Bengal.

pg. 26
  Production, consumption and export of finished steel for the period April-
December, 2007 grew by 6.6%, 12.3 % and 9.1 % respectively as compared to
the corresponding period of the previous year.

 Data relating to production, consumption, import and export of finished steel

(alloy & non-alloy) and crude steel from the year 2002-03 onwards.

Present growth Scenario and future outlook:

In India the steel sector is growing at a robust rate with significant increases in
both production and consumption. Crude steel production grew at more than 10 %
annually from 34.71 million tonnes in 2002-03 to 50.82 million tonnes in 2006-07.

This growth was driven by both capacity expansion (from 40.41 million tonnes in
2002-03 to 56.84 million tonnes in 2006-07) and improved capacity utilization (from
86% in 2002-03 to 89% in 2006-07). During 2006, India emerged as the 5th largest
crude steel producing country in the world as against 8th position three years back.

India, the world’s largest producer of direct reduced iron (DRI) or sponge iron, is
also expected to maintain its lead in the near future. Sponge iron production grew at a
CAGR of 22% to reach a level of 18.35 million tonnes in 2006-07 compared to 7.86
million tonnes in 2002-03. India is expected to become the second largest producer of
steel in the world by 2015.

Crude steel: Trends in Production, Private/ Public Sector:

Traditionally, Indian steel industries were classified into Main Producers (SAIL
plants,Tata Steel and Vizag Steel/ RINL) and Secondary Producers. However, with the
coming up of larger capacity Steel making units, of different process routes, the
classification has been characterized as Main Producers & Other Producers.

Other Producers comprise of Major Producers namely Essar Steel, JSW Steel and
Ispat Industries as well as large number of Mini Steel Plants based on Electric Furnaces
& Energy Optimising Furnaces. Besides the steel producing units, there are a large
number of Sponge Iron Plants, Mini Blast Furnace units, Hot & Cold Rolling Mills &
Galvanising/ Colour Coating units which are spread across the different states of the
country. The following table highlights the total as also the contribution of the private
and public sector in crude steel production in the country.

The Indian Steel Industry has withstood international competition despite the
reduction of basic customs duty on steel from 25-30% in 2002-03 to 5% in 2006-07.

pg. 27
The industry now operates in an open economy where exports and imports respond to
increases or decreases in the domestic demand driven primarily by market signals.
While exports of finished steel were sustained at a level of 4-5 million tonnes per
annum during the 10th Plan, imports sharply increased from about 1.66 million tonnes
in 2002-03 to 4.93 million tonnes in 2006-07 not because of fall in competitiveness but
to fill up supply-demand gap in the domestic market. In the current year, production,
consumption and exports of finished steel for the period April-December, 2007 grew by
6.6%, 12.3% and 9.1% respectively as compared to the corresponding period of the
previous year.

Imports of finished steel during the current year (April-December, 2007) were up
by 68.7 % over the corresponding period of the previous year. The pace of consumption
growth has thus outpaced production growth and the country has become a net importer
of steel. These facts indicate a healthy demand for steel in the domestic market which
augurs well for the steel industry especially at a time when new investments are lined up
in the steel sector.

Expansion in Capacity:

The National Steel Policy 2005 had projected consumption to grow at 7% based
on a GDP growth rate of 7-7.5% and production of 110 million tonnes by 2019-2020.
These estimates will be largely exceeded and it is envisaged that in the next five years,
demand will grow at a considerably higher annual average rate of over 10% as
compared to around 7% growth achieved between 1991-92 and 2005-06. It has been
assessed that, on a ‘most likely scenario’ basis, the steel production capacity in the
country by the year 2011-2012 will be nearly 124 million tonnes.

pg. 28
2.2PROFILE OF VISAKHAPATNAM STEEL PLANT

INTRODUCTION:

Steel occupies the foremost place among the materials in use today and pervades
all walks of life. All key discoveries of human genius, for instance, Steam Engine,
Railway, means of Communication and Connection, Automobile, Aero Plane and
Computers are in one way or other, fastened together with Steel and its sagacious and
Multifaceted applications.

Steel is versatile material with multitude of useful properties, making it

indispensable for furthering and achieving continual growth of economy be it
Construction, manufacturing, infrastructure or consumables. The level of steel
consumption has long been regarded as an index of industrialization and economic
maturity attained by a country.
Keeping in view of the importance of steel, the following integrated steel plants with
foreign collaborations were set up in public sector in post independence era (Table 4.0)
INTEGRATED STEEL PLANTS IN INDIA

STEEL PLANT COLLABORATION

1. Durgapur Steel Plant Britain

2. Bhilai Steel Plant Erstwhile USSR

3. Bokaro Steel Plant Erstwhile USSR

4. Rourkela Steel Plant Germany

pg. 29
Background of Visakhapatnam Steel Plant:

To meet growing domestic needs of steel, Government of India decided to set up

an Integrated Steel Plant at Visakhapatnam. An agreement was signed with erstwhile
USSR in 1979 for co-operation in setting up 3.4 MT integrated steel plant at
Visakhapatnam.

The project profile of 3 MT Stage in Table 4.1

Description 3 MT STAGE

Original First Second Third

Sanction Revisio Revisio Revisio

n n n

Implementing Agency SAIL RINL RINL RINL

Date of sanction by GOI 19.6.79 30.07.8 24.06.88 12.07.9

2 5

Zero Date Not specified 01.02.8 01.02.82 01.02.8

2 2

Gestation period 6 years 6 years 8 ½ 10 ½

years yrs

Anticipated Date of Not specified Dec 87 June 90 July 92

Commissioning

Capital Cost (Rs crores) 2256.00 3897.2 6849.70 8593.29

pg. 30
 8

Base Date 1 qtr 79 4 qtr 4 qtr 87 Jan 94

81

FE Component (Rs. Crores) 500.20 679.59 1214.86 1521.55

Cost Escalation Rs. Crores -- 1641.2 2952.42 1743.59

Capacity (MT liquid steel per 3.40 3.40 3.00 3.00

annum)

TECHNOLOGY:

VSP was equipped with state of the art technology of steel making, large scale
computerization and automation was incorporated in the plant to achieve International
Level of Efficiency and Productivity, the organizational manpower has been
rationalized.

The following are some of the important technologies used in the plant.

 7 meter tall coke over batteries with coke dry quenching plant

 3200 cubic meter blast furnace, biggest in the country.

 Bell-less top charging system in blast furnace

 100% slag granulation at BF cast house

 Suppressed combustion LD gas recovery

 100% continuous casting of liquid steel

pg. 31
  “TEMPCORE” and “STELMORE” cooling process

 Extensive Waste Heat Recovery System

 Comprehensive Pollution Control Measure

Raw Material Source

Iron Ore lumps and fines Bailadilla, MP

BF Limestone Jaggayyapeta, AP

BF Dolomite Madharam, Andhra Pradesh

SMS Dolomite Madharam, Andhra Pradesh

Manganese Ore Chipurupalli, Andhra Pradesh

Boiler Coal Talcher, Orissa

Coking Coal Australia

Medium Coking coal (MCC) Gidi/swang/rajarappa/kargali

Major Sources of Inputs:

Water Supply:

Operational water requirement of 36 MGD is being met from Yeleru Water Supply

Scheme.

pg. 32
Power Supply:

Operational power requirement of 180-200 MW is being met through captive power

plant. The capacity of captive power plant is 286.5 MW. The plant is selling around 60
MW of power to APSEB (Andhra Pradesh State Electricity Board).

Major Units of VSP:

DEPARTMENT ANNUAL UNITS (0. 3 MT STAGE)

S CAPACITY (‘000T)

COKE OVENS 2261 3 batteries each of 67 ovens of 7

Meters heights.

BLAST 3400 2 furnaces of 3200 m3 each

FURNACE

SINTER PLANT 5256 2 sinter machines of 312 sq

meter grate area each

STEEL 3000 3 LD converters each of 150 M3

MELTING volume and six four strand

SHOP bloom caster.

LMMM 710 Four strand finishing mill

WRM 850 2x10 strand finishing mill

MMSM 850 6 strand finishing mill

pg. 33
PROCESSES:

COKE OVENS SINTER

PLANT

BLAST FURANCE STEEL MELTING SHOP

CONTINUOUS CASTING ROLLING MILLS

pg. 34
PRODUCT MIX OF VSP:

Main Products:

1. PIG IRON Low Silicon basic grades

2. BLOOMS 245x245 mm 5.5 6.08 meters

315x245 mm 5.8 6.40 meters

3. BILLETS 125x125 mm 9.8 10.4 meters

90x90 mm 6.0 12 meters

75x75 mm 6.0 12 meters

65x65 mm 6.0 12 meters

4. WIRE RODS 5.5 mm, 6 mm, 6.5 mm, 7 mm, 7.5 mm,

8 mm, 9 mm, 10 mm, 11 mm, 12 mm,

12.7 mm, 13 mm & 14 mm

5. REINFORCEMENT BAR
BRAND: VIZAG TMT 8 mm, 10 mm, 12 mm, 16 mm, 18 mm,

(In straightened or coil form) 20 mm, 22 mm, 25 mm, 28 mm, 32 mm,

36 mm & 40 mm

6. ROUNDS 16 mm, 16.5 mm, 18 mm, 20 mm, 20.64 mm,

22 mm, 25 mm, 28 mm, 32 mm, 33.5 mm,

pg. 35
 34 mm, 36 mm, 40 mm, 42 mm, 45 mm,

46.5 mm, 50 mm, 53 mm, 56 mm, 60 mm,

63 mm, 65 mm, 71 mm, 75 mm, 77 mm & 80 mm

7. EQUAL ANGLES 50x50 x 5/6 mm, 60x60 x 6 mm,

65x65 x 6mm, 75x75 x 6/8 mm,

90x90 x 6/8mm, 100x100 x 8/10mm

& 110x110 x 8/10 mm

8. CHANNELS ISMC- 40x32x5 mm, 75x40x4.8mm,

100x50x5mm, 125x65x5.3mm,

150x75x5.7mm & 150x76x6.5mm

9. BEAMS IPE – 175x85 mm, 150x75 mm &180x91 mm

120x114 mm (HE-BEAMS)

10. FLATS 150x10 mm & 150x12 mm

pg. 36
By-Products:

1. FERTILIZER “PUSKALA” Brand Ammonium Sulphate

2. COALCHEMICALS & TAR PRODUCTS Coal Tar Pitch (Soft)

Coal Tar Pitch (Hard)

Anthracene Oil

HP Naphthalene

Pitch Cresote Mixture

Coal Tar Wash Oil

Phenol fractions

3. COKE FRACTIONS Nut Coke (15-25 mm)

Coke Dust (Coke Breeze)

4. BENZOL PRODUCTS Caprolactum grade Benzene

NG Toluene/IG Toluene

Light Solvent Naphtha (LSN)

5. MISCELLANEOUS PRODUCTS Granulated BF Slag

Calcined Lime Fines

Fly ash, Liquid Argon

Liquid Oxygen

Liquid Nitrogen

Boiler Coat Dus , SMS Slag

pg. 37
FUTURE PLANS:

1.0 VISION:

 To be a continuously growing world-class company.

 Harness our growth potential & sustain profitable growth

 Deliver high quality and cost competitive products and be the first choice of

customers

 Create an inspiring work environment to unleash the creative energy of people

 Achieve excellence in enterprise management

 Be a respected corporate citizen, ensure clean and green environment and develop

vibrant communities around us.

2.0 MISSION:

To attain 16 million ton liquid steel capacity through technological up gradation,

operational efficiency and expansion to produce steel at international standards of cost
and quality, and to meet the aspirations of stakeholders.

3.0 OBJECTIVES:

 Expand plant capacity to

6.3 Mt by 2008-09

8.5 Mt by 2010-11

13.0 Mt by 2014-15

pg. 38
 16.0 Mt by 2017-18

With the mission to expand further in subsequent phases as per the Corporate Plan

 Sustain gross margin to turnover ration >25%

 Be amongst the top five lowest cost liquid steel producers in the world by 09-10

 Achieve higher levels of customer satisfaction than competitors

 Instill right attitude amongst employees and facilitate them to excel in their

professional, personal and social

 Be recognized as a excellent business organization by 2008-09

 Be proactive in conserving environment, maintaining high levels of safety and

addressing social concerns.

4.0 CORE VALUES:

a. Commitment

b. Customer Satisfaction

c. Continuous improvement

d. Concern for Environment

e. Creativity & Innovation

pg. 39
 CHAPTER 3

pg. 40
 3.1 THERIATICAL FRAMEWORK OF THE STUDY

INTRODUCTION OF RATIOS ANALYSIS

In the last to last chapter we studied five of the tool available in the tool available
in the tool kit of a financial analyst namely multi step income statement,horizontal
analysis ,common sized analysis,trend analysis and analytical balance sheet and applied
them to analyse the financial statement of capol ltd and libertyeltd. We can upon some
interesting findings based on that analysis .what you must have observed is that in all
the cases we analysed the two financial statements ,that is,balance sheet and profit and
loss statement,almost in isotation .In reality however,the two statements are totally
interrelated and dependent on each other . this is ,despite their merits, one of their
limitations and thence the need for amore comprehensive tool of analysis,that is Ratio
Analysis.One of the ratio that is Eps has been analysed in the last chapter.

Defination of Ratio analysis:-

Ratio Analysis is a comprehensive tool of analysis in that it seats to measure and

establish cause and effects the relationships between either two items of balance sheet ,
say current ratio ,that is ratio of current assets to current liabilities, or of profit and loss
account, say net profit margin that is ratio of pat to net sales or both the balance sheet
and the profit and loss account say return on net worth that is ratio efficiency
profitability and capital market valuation of a company.

pg. 41
Ratio analysis is thus a relative and more focused analysis of financial statements. That
does not mean that it can be used independently of other tools and techniques .It leads
to an expansion and futher analysis of the findings recorded through other tools.
Ratio analysis is of particular significance in the following cases
 Inter firm comparison,because absolute figure comparison will lead to now where
 Intra firm comparison for the same reason
 Comparison against industry benchmarks
 Analysis of chronological performance over a long period

As you will observe later in this chapter ,while analysing the

ratios of industries Ltd., ratio analysis ,particularly the computation part may accquire
numerous reasonable and logical assumption depending upon the information
available.hence the need for a full annual report .At the same time, however, to initiate
you in the subject it is necessary to take up abridged financial statements.

INTRODUCTION

The success any organization mainly depends upon four functional areas of
management namely finance, production, marketing and personal management. Finance
is defined as the provision of money at the time it is required. Every enterprise either
big, medium or small, needs finance to carry on its operations and to achieve its targets.

pg. 42
Ratio Analysis is part of the finance statement analysis, which helps in know in the
companies position to the outsiders.

A ratio is relationship between to variable unless to variables are compared it

cannot be calculated which one is superior to other. This is the region why the ratio
analysis is done.

This technique is very much usefully in the assessment of working capital

requirement and also to know the performance of company. By using the these ratios we
can review the at how much working capital are invested in current assets.

The company’s Financial Information is contained in the basic financial

statements i.e. balance sheet, trading and profit & loss account.

These statements are very useful for evaluating the financial position and
performance of the of a firm. In practical use these statements does not give much more
detailed information what creditors, investors, other people who these with the
company. So ratio analysis is a technique that helps these people to deal with the
company.

However, it is to be noticed that there is a basic limitation of the traditional

financial statement comprising the balance sheet and the profit & loss account i.e., they
do not give all the information regarding financial operation of the firm. Accordingly
RATIOS not only indicate the present position, they also indicate the causes leading up
the large extent for instance accounts ratio. May indicate not only the financial position
and precautions but also the past policies and actions they have caused.

Using various ratios we can find out the liquidity and solvency position of the company.

pg. 43
 Ratio Analysis is a powerful tool of financial analysis, it is a widely used tool of
financial analysis and interpretation of ratios should give experienced , skills
analysts a better understanding of the financial condition and performance of the
firm than they would obtain from the analysis of financial data alone .A ratio
analysis is analyzing the information by comparing two different variables.

Ratio Analysis the principle tool of finance statememt analysis. it is the

process of analyzing the relation between two financial variables. It is also
defined as the systematic use of ratio is to interpret the financial statement so
that the strengths and weakness of afirm as well as its historical performance and
current financial condition can be determined. The relationship can be expressing
items that are related with each other are for the purpose of financial analysis
, referred to as ratio Analysis. But comparing ratios merely does not add any
information of profits and sales. They reveal the relationship in more meaningful
way which enables to draw better conclusions.

pg. 44
CLASSIFICATION OF RATIOS:

Classification from the point of view of financial management or objective

1. Liquidity ratios
2. Profitability ratios
3. Turnover ratios
4. Solvency ratios

1.LIQUIDITY RATIO:

‘Liquidity’ means ability of a firm to meet its current obligations. The liquidity
ratios, therefore, try to establish a relationship between current liabilities, which are the
obligations soon becoming due and current assets, which presumably provide the source
from which these obligations will be meet. In other words the liquidity ratios answer the
questions : “ will the company probably be able to meet its obligation when they
become due?” The following ratios are commonly used to indicate the liquidity of
business.
a) Current ratio
b) Quick ratio
c) Cash ratio/Absolute liquid ratio

a) CURRENT RATIO:

pg. 45
This ratio is most commonly used to perform the short-term financial analysis. Also
known as the working capital ratio, this ratio matches the current assets of the firm to
its current liabilities.

Formula:
Current asset
Current ratio = ____ ___________
Current liabilities

SIGNIFICANCE AND OBJECTIVE:

Current ratio throws good light on the short term financial position and policy.
It is an indicator of a firm ability to promptly to meet the current liabilities. A relatively
high current ratio indicates that the firm is liquid and has the ability to meet its current
liabilities. On the other hand a relatively low current ratio indicates that the firm will
find it difficult to pay its bills.

Normally a current ratio of 2 : 1 is considered satisfactory in other words, current

assets should be twice the amount of current liabilities. If the current ratio is 1:1 it
means that funds yielded by current assets are just sufficient of pay the amounts due to
various creditors and there will be nothing left to meet the expenses which are being
currently incurred. Thus the ratio should always be more than 1 : 1 a very high current
ratio is also not desirable because it indicates idleness of fund which is not a sign of
efficient financial management.

b) QUICK RATIO:

pg. 46
 This ratio is also known as acid test ratio or liquid ratio. It is a more severe test
of liquidity of a company. It shows the ability of a business to meet its immediate
financial commitments. It is used to supplement the information given by the current
ratio.

Formula:

Quick assets
Quick ratio = _____________________
Quick liabilities

SIGNIFICANCE AND OBJECTIVE:

Quick ratio is a more rigorous test of liquidity of a firm than the current ratio.
When quick ratio is used along with current ratio, it gives a better picture of the firm’s
ability to meet its short term liabilities out of its short term assets. This ratio is of great
importance for banks and financial institutions.
Generally a quick k ratio of 1 : 1 is considered to represent a satisfactory current
financial position.

c) CASH RATIO:

The cash ratio is calculated by dividing cash + marketable securities by current

liabilities.

Cash + Marketable Securities

pg. 47
CASH RATIO =
Current liabilities

Since cash is most liquid asset, a financial analyst may examine cash ratio and its
equivalent to current liabilities. Trade investment or marketable securities are
equivalent of cash; therefore, they may be included in the computation of cash ratio.

2.PROFITABILITY RATIOS :

A company should earn profits to Survive and Grow over a long period of time.
Profits are essential, but it would be wrong to assume that every action initiated by
management of a company should be aimed at maximizing profits, irrespective of social
consequences.Profit is the difference between revenues and expenses over a period of
time (usually a year). Profit is the ultimate “Output” of a company, and it will have no
future if it fails to make sufficient profits. Therefore, the financial manager should
continuously evaluate to the efficiency of the company in term of profits.

The profitability ratios are calculated to measure the operating efficiency of the
company. Besides management of the company, creditors and owners are also
interested in the profitability of the firm. Creditors want to get interest and repayment
of principle regularly. Owners want to get a required rate of return on their investment.
This is possible only when the company earns enough profits.

PROFITABILITY RATIOS ARE BASICALLY THREE TYPES

 GROSS PROFIT RATIO
 OPERATING RATIO
 NET PROFIT RATIO

pg. 48
 GROSS PROFIT MARGIN:

Gross profit margin reflects the efficiency with which the management
produces each unit of product. This ratio indicates the average spread between the cost
of goods sold and the sales revenue. When we subtract the gross profit margin from
100%, we obtain the ratio of Cost of goods to Sales.
Both this shows profits relative to sales after the deduction of production costs, and
indicates the relation between Production costs and Selling price. A high gross profit
margin relative to the industry average implies that the firm is able to produce at
relatively lower cost.

A high gross profit margin ratio is a sign of good management. A gross margin ratio
may increase due to any of the following factors.
Higher sales prices, cost of goods sold remaining constant,
i. Lower cost of goods sold, sales prices remaining constant,
ii. A combination of variations in sales prices and costs, the margin widening, and
iii. Increases in the proportionate volume of higher margin items.

The analysis of these factors will reveal to the management that how a depressed gross
profit margin can be improved.

A low gross profit margin may reflect higher cost of goods sold due to the firms`
inability to purchase raw materials at favorable terms, inefficient utilization of plant and
machinery, resulting in higher cost of production. The ratio will also be low due to fall
in prices in the market, or market reduction in selling price by the firm in an attempt to

pg. 49
obtain large sales volume, the cost of goods sold remaining unchanged. The financial
manager must be able to detect the causes of a falling gross margin and initiate action to
improve the situation.

Sales – Cost of goods sold

(or) Gross profit
GROSS PROFIT MARGIN RATIO =
Sales

NET PROFIT MARGIN RATIO:

A firm with a high net margin ratio would be in an advantageous position to

survive in the face of falling selling prices, rising costs of production or declining
demand for the product. It would really be difficult for a low net margin firm to
withstand these adversities. Similarly, a firm higher net profit margin can make better
use of favorable condition, such as rising selling prices; fall in costs of production or
increasing demand for the product. Such a firm will be able to accelerate its profits at a
faster rate than a firm with a low net profit margin will.
An analyst will be able to interpret the firm’s profitability more meaningfully if he/she
evaluates both the ratios-gross margin and net margin-jointly. To illustrate, if the gross
profit margin has increased over years, but the net profit margin has either remained
constant or declined, or has not increased as fast as the gross margin, this implies that
the operating expenses relative to sales have been increasing. The increasing expenses
should be identified and controlled. Gross profit margin may decline due to fall in sales
price or increase in the cost of production.

Profit after tax

NET PROFIT MARGIN RATIO =

pg. 50
 Sales

OPERATING MARGIN RATIO:

Operating margin ratio is also known as Operating Net profit ratio. It is the ratio
of operating profit to sales. This ratio establishes the relationship between the total cost
incurred and sales. Operating profit is the Net profit after depreciation but Before
Interests and Taxes. The purpose of computing this ratio is to find out the overall
operational efficiency of the business concern. It measures the const of operations per
rupee of sales.
This ratio is expressed as operating profit to sales.

Operating profit
OPERATING MARGIN RATIO = X 100
Sales

3.TURNOVER RATIOS:

Turnover ratios are used to indicate the efficiency with which assets and
resources of the firm are being utilized. These ratios are known as turnover ratios
because they indicate the speed with which assets are being converted or turned
over into sales. These ratios thus express the relationship between sales and
various assets. A higher turnover ratio generally indicates better use of capital
resources which in turn has a favorable effect on the profitability of the firm.

pg. 51
Important Turnover ratios:
 Inventory turnover ratio
 Debtors turnover ratio
 Fixed assets turnover ratio
 Working capital turnover ratio

 INVENTORY TURNOVER RATIO:

This ratio is calculated by dividing the cost of goods sold by average

inventory.

Formula:
Cost of goods sold
Inventory turnover ratio= _______________________
Average stock (or inventory)

SIGNIFICANCE AND OBJECTIVES:

Inventory or stock turnover ratio indicates the efficiency of a firm’s

inventory management. This ratio gives the rate at which h stocks are converted
into sales and then into cash a low inventory or unsalable gods etc. generally
speaking, a high stock turnover ratio is considered better into indicated that more
sales are being produced by each rupee of investment in stock but a higher stock
turnover ratio may not always be an indicator of a favorable results.

It may be the result of a very low level of stock whis meeting customers’
demands and the company cannot earn maximum profits.Thus too high and too
low inventory turnover ratio may not be good and should be investigated further a
company should have a proper inventory turnover ratio so that it is able to earn a
reasonable margin of profit.

pg. 52
 DEBTORS TURNOVER RATIO:

This ratio indicates the relationship between net credit and trade debtors. it
shows the rate at which cash is generated by the turnover of debtors.

Formula:
Credit sales
Debtors turnover ratio=______________________
Average debtors

SIGNIFICANCE AND OBJECTIVES:

The significance of this ratio lies in the fact that debtors constitute the important items
of current assets and this ratio indicates as follows to how many days’ average sales are
tied up in the amount of debtors. Changes in this ratio are an excellent supplement to the
information provided by current ratio.

 WORKING CAPITAL TURNOVER RATIO:

This ratio indicates the efficiency or inefficiency in the utilization of forking capital
in making sales. It is computed as follows;
Sales (or Cost of Sales)
Working capital turnover Ratio=
Net working Capital

SIGNIFICANCE AND OBJECTIVE:

pg. 53
A high working capital turnover ratio shows the efficient utilization working capital in
generating sales. A low ratio, on the other hand, may indicate excess of net considered
capital. This ration thus shows whether working capital is efficiently of the entire
working capital whereas stock better than Stock Turnover Ratio because it shows the
utilization of the inventories which is only a part of working capital.

4.SOLVENCY RATIO:

DEBT – EQUITY RATIO :

The relationship describing the lender contribution for each rupee of the owner’s
contribution is called DEBT-EQUITY RATIO. DEBT – EQUITY RATIO is
directly computed by the following formula.

DEBT
DEBT-EQUITY RATIO =
EQUITY
EARNING PER SHARE:

We can get this by calculating the division of PAT and number of shares

Profit after tax

Earning per share =

No.of shares

pg. 54
 CHAPTER 4

pg. 55
 4.1 TABULATION AND ANALYSIS

1. LIQUIDITY RATIO:
 CURRENT RATIO:

Current assets
Current ratio = -----------------------------------------
Current liabilities

TABLE SHOWS YEAR WISE CURRENT RATIO

(` in Crores.)
YEAR CURRENT CURRENT RATIO’S
ASSETS LIABILITIES

2011-2012 8492.11 7221.61 1.17

2012-2013 9977.75 10184.67 0.98

2013-2014 8400.66 10211.56 0.82

2014-2015 9637.46 15059.38 0.64

2015-2016 8499.17 13648.11 0.62

pg. 56
 CHART PREPARATION

1.4

1.2

0.8
YEAR
0.6 RATIO’S

0.4

0.2

0
1 2 3 4 5 6

INTERPRETATION:

It has been observed that the quick ratio of VSP is high compared with ideal ratio
till 2011-2012. But it is below ideal ratio for the year 2012-2013 onwards.

As the quick ratio during the period of study is higher than that of the ideal ratio till
2012--2013, the liquidity position was very good but it is not satisfactory from the year
2012-2013.

pg. 57
  ABSOLUTE LIQUID/ CASH RATIO

ABSOLUTE ASSETS
Absolute liquid/ cash ratio: --------------------------------------
CURRENT LIABILITIES

TABLE SHOWING YEAR WISE ABSOLUTE LIQUID RATIO

(` in Crores)
YEAR CURRENT CURRENT RATIO’S
ASSETS LIABILITIES
2011-2012 2068.34 7221.61 0.28
2012-2013 1625.02 10184.67 0.16
2013-2014 175.89 10211.56 0.02
2014-2015 63.94 15059.38 0.004
2015-2016 3914.5 13648.11 0.28

CHART PREPARATION

pg. 58
 0.3

0.25

0.2

0.15 YEAR
RATIO’S
0.1

0.05

0
1 2 3 4 5 6

INTERPRETATION:

The Absolute ratio has decreased drastically for the year 2012-2013. It enjoyed high
liquidity position till 2011-2012 as the ratio was above ideal ratio.

 LIQUID RATIO

LIQUID ASSETS
Liquid Ratio=
CURRENT LIABILITIES

TABLE SHOWING ON LIQUID RATIO

(` in Crores)
YEAR LIQUID CURRENT RATIO’S
ASSETS LIABILITIES

2011-2012 508.9 7221.61 0.7

2012-2013 6149.15 10184.67 0.6

2013-2014 4537.62 10211.56 0.44

pg. 59
 2014-2015 4457.95 15059.38 0.30

2015-2016 688.15 10211.56 0.067

CHART PREPARATION

0.8

0.7

0.6

0.5

0.4 year
RATIO’S
0.3

0.2

0.1

0
1 2 3 4 5 6

pg. 60
INTERPRETATION:

The liquid ratio in the year 2013-2014 is 0.44

It is slightly decrease in 2014-2015.

2. PROFITABILITY RATIOS:

 GROSS PROFIT RATIO:

GROSS PROFIT (PBIT)

Gross Profit Ratio= × 100
SALES

TABLE SHOWN IN GROSS PROFIT RATIO

(` in Crores)

YEAR GROSS SALES RATIO’S

PROFIT
2011-2012 1301 13232.61 13.4
2012-2013 886 12110.69 9.8
2013-2014 887 12028.33 7.37
2014-2015 538 9314.36 5.78
2015-2016 1839.26 8989.3 0.20

CHART PREPARATION

pg. 61
 RATIO’S
16
14
12
10
8
RATIO’S
6
4
2
0
1 2 3 4 5 6

INTERPRETATION:

It has been observed that the gross profit ratio is in increasing trend up to 2009-10

and it is decreasing from 2010-2011.Sales are in increasing trend but the profit ratio is

decreasing. It is due to decreased cost of production.

 NET PROFIT RATIO

Net profit (after tax)

Net profit ratio = --------------------------------------------- X 100
Sales

pg. 62
 TABLE SHOWING YEAR WISE NET PROFIT RATIO
(`. in Crores)

YEAR NET PROFIT SALES RATIO’S

2011-2012 751 13232.61 5.67

2012-2013 353 12110.69 2.91
2013-2014 366 12028.33 3.04
2014-2015 62 9314.36 0.67
2015-2016 -1420.64 10132.9 -14.02

CHART PREPARATION:

10

0 YEAR
1 2 3 4 5 6
-5
RATIO’S

-10

-15

-20

pg. 63
INTERPRETATION:

 Net profit is in decline position from 2014-15 in comparative with 2013-14.

 Main attributable reason for the declining the profit is overall global meltdown.

 Even in adverse market conditions, the company is able to earn net profits.

 But in 2015-2016 the position is very bad, the net profit is decline.

 OPERATING PROFIT RATIO

Operating profit
Operating profit ratio = ---------------------------------------- X100
Sales

TABLE SHOWING YEAR WISE OPERATING PROFIT RATIO

(` in Crores)

YEAR OPERATING SALES RATIO’S

PROFIT
2011-2012 751 13232.61 5.67
2012-2013 352.83 12110.69 2.91
2013-2014 366.45 12028.33 3.04
2014-2015 62.38 9314.36 0.67
2015-2016

CHART PREPARATION

pg. 64
 OPERATING PROFIT RATIO’S

6
5
4
3 RATIO’S

2
1
0
2010-2011 2011-2012 2012-2013 2013-2014 2014-2015

INTERPRETATION:

It indicates the company’s operational efficiency.

3. TURNOVER RATIO:

 INVENTORY TURNOVER RATIO

Sales
Stock Turnover Ratio =
Stock
TABLE SHOWN ON STOCK TURNOVER

RATIO

(` in Crores)

YEAR SALES INVENTORY RATIO’S

2011-2012 13232.61 3403.11 3.89
2012-2013 12110.69 3828.6 3.16
2013-2014 12028.33 3863.04 3.11
2014-2015 9314.36 5179.51 1.80
2015-2016 2864.21 4543.505 0.63

pg. 65
CHART PREPARATION

4.5
4
3.5
3
2.5
YEAR
2
RATIO’S
1.5
1
0.5
0
1 2 3 4 5 6

INTERPRETATION:

 The Inventory Turnover Ratio during the year 2014-15 was 1.80

 less stock turnover ratio in the year 2014-2015

 Higher ratio also indicates that the company is not able to meet the customers

demand properly.

 DEBTORS TURN OVER RATIO

Net credit annual sales

Debtors Turn Over Ratio = ------------------------------------
Average trade debtor

TABLE SHOWING YEAR WISE DEBTORS TURN OVER RATIO

(` in Crores)
YEAR SALES DEBTORS RATIO’S
2011-2012 13232.61 427.15 31.00
2012-2013 12110.69 1009.65 11.99
2013-2014 12028.33 803.65 14.97

pg. 66
 2014-2015 9314.36 1035.43 9.00
2015-2016 28738.49 4768.88 6.02

CHART PREPARATION

35

30

25

20
YEAR
15 RATIO’S

10

0
1 2 3 4 5 6

INTERPRETATION:

The debtor turnover ratio for the year 2014-15 is 9.00

It can be concluded that the management is efficient in converting the debtors into cash.

 WORKING CAPITAL TURNOVER RATIO

Net sales
Working capital turnover ratio = -------------------------------------------------
Working capital

TABLE SHOWING YEAR WISE WORKING CAPITAL TURNOVER RATIO

(` in Crores)

pg. 67
 YEAR SALES WORKING RATIO’S
CAPITAL
2011-2012 13251.04 1270.5 10.41
2012-2013 12110.69 -206.92 -58.52
2013-2014 12028.33 -1810.90 -6.64
2014-2015 9314.36 -5421.92 -1.72
2015-2016 8989.5 5148.94 1.74

CHART PREPARATION

RATIO’S
20
10
0
1 2 3 4 5 6
-10
-20
RATIO’S
-30
-40
-50
-60
-70

INTERPRETATION:

pg. 68
  The working capital turnover ratio during the year 2014-15 is -1.72 times. It

shows that negative indication.

 The higher working capital ratio indicates that the efficient utilization of working

capital.

 TOTAL ASSETS TO TURNOVER RATIO

Sales
Total Assets Turnover Ratio=
Total Assets

TABLE SHOWING YEAR WISE TOTAL ASSETS TO TURNOVER RATIO

(` in Crores)

YEAR SALES TOTAL RATIO’S

ASSETS
2010-2011 10471.18 18691.84 0.56
2011-2012 13232.61 21504.84 0.61
2012-2013 12110.69 24652.52 0.50
2013-2014 12028.33 24671.83 0.49
2014-2015 9314.36 27860.13 0.33

CHART PREPARATION

pg. 69
 TOTAL ASSETS TURNOVER RATIO’S
0.7
0.6
0.5
0.4
0.3 RATIO’S
0.2
0.1
0
2010-2011 2011-2012 2012-2013 2013-2014 2014-2015

INTERPRETATION:

The Total Assets Turnover Ratio is the decrease from previous year to current year,
thatis
2014-2015 year of Total Assets Turnover Ratio is 0.33
It can be concluded that the management is not efficient in converting the Assets into
cash.

3. SOLVENCY RATIO:

 DEBT EQUITY RATIO

Long Term Debts

Debt equity Ratio =
Share Holders Funds

TABLE SHOWING YEAR WISE DEBT EQUITY RATIO

(` in Crores)

YEAR LONG SHARE HOLDERSD RATIO’

pg. 70
 TERM DEBTS FUNDS S
2011-2012 623.94 13659.29 0.04
2012-2013 1990.54 12477.32 0.16
2013-2014 2319.53 12140.74 0.19
2014-2015 1206.82 11593.93 0.10
2015-2016 4768.88 9873.2 0.48

CHART PREPARATION

RATIO’S
0.6

0.5

0.4

0.3
RATIO’S
0.2

0.1

0
1 2 3 4 5 6

INTERPRETATION:

The debt equity ratio is the increasing of the debt equity holders. The ratio of 0.19 in
the year 2013-14 and in the year of 2014-15 it is 0.10

 EARNING PER SHARE

TABLE SHOWING YEAR WISE EARNING PER SHARE(` in Crores)

Year RATIO

pg. 71
 2011-2012 126
2012-2013 48
2013-2014 62
2014-2015 9
2015-2016 2

CHART PREPARATION:

RATIO
140

120

100

80

60 RATIO

40

20

0
1 2 3 4 5 6

INTERPRETATION:

Earnings per share ratio are used to find out the return that the
shareholder’s earn from their shares. After charging depreciation and after payment of
tax, the remaining amount will be distributed by all the shareholders.

Net profit after tax is decreased due to the huge decrease in the income
from services. That is the amount which is available to the shareholders to take. The

pg. 72
share capital is constant from the year 2008. Due to the decrease in net profit the
earnings per share is decreased in 2015.

pg. 73
 CHAPTER 5

5.1SUMMARY

SUMMARY:

The Visakhapatnam Steel Plant is the most modern integrated steel plant. It is the
only shore-based plant in India for producing 3 million tones of steel from India.
Visakhapatnam Steel Plant produces a variety of products using the fastest technology

pg. 74
available. Visakhapatnam Steel Plant has only the technology but also the knowledge of
its customer needs. The RINL has also established a dealer network to effectively serve
the growing demand for Vizag Steel.

Financial management is that managerial activity, which is concerned with the

planning and controlling of the firm’s financial resources, its activities, and the mix of
debt and equity which is nothing but its Capital Structure. The financial manager must
strive to obtain the best financing mix or the optimum capital structure for his or her
firm.

The analysis of financial statements is, thus, an important aid to financial analysis.
Users of financial statements can get further insight about financial strengths and
weaknesses of the firm if they properly analyze information reported in these statements.
The future plans of the firm should be laid down in view of the firm’s financial strengths
and weaknesses.

Ratio analysis is a widely – used tool of financial analysis. Ratio is used as a

benchmark for evaluating the financial position and performance of a firm. As a tool of
financial management, ratios are of crucial significance. Ratio analysis is relevant in
assessing the performance of a firm in respect to the following aspects:

 Liquidity position
 Long – term solvency
 Operational efficiency
 Overall profitability
 Inter – firm comparison, and
 Trend analysis

pg. 75
SUMMARY OF RATIOS ANALYSIS IN VSP/RINL:

Ratio analysis is the technique to know the financial position of the company. Ratio
analysis in Visakhapatnam Steel Plant is very important as it indicates the liquidity,
solvency and profitability position of the VSP.

 Liquidity ratios i.e., Quick ratio and Cash ratio are up to the conventional ratios. So,
it could be further improved by decreasing its Current liabilities and increasing its
Current assets in par with its requirements.

 Although Debt – Equity ratio is low, it is in a satisfactory position. Under

unfavorable conditions lower Debt/Equity is desirable. The increase in the interest
coverage ratio shows that the firm has improved its ability to a greater extent in
handling fixed charge liabilities. Also the Proprietary ratio is in satisfactory state.

 Inventory turnover ratio has improved in the current year, shows the operational
efficiency of the firm in managing the inventories. The increase in the Debtors
turnover ratio and decrease in the Debtors collection period shows the effective
management of debtors/credit sales.

 There is a Net Profit in the current year. All the profitability ratios basing on
investment like return on investment, net worth, capital and gross block which were
negative in the previous years. But turned positive and has yielded reasonable results
in the current year.

 The analysis for the purpose of the investing in shares generally concentrates on the
return on equity of VSP, which is increasing; therefore the shares may be purchased.

pg. 76
 5.2 FINDINGS

Findings:

1. In the course of the study of the following findings have been made: Challenges
are being faced by the steel industry worldwide with slowdown in global

pg. 77
 economies. There was a growth of 0.7% in steel demand globally during 2014,
which is projected to decrease by 1.7% in 2015. Due to China steel and other
reasons such as production costs has an impact on India`s steel industry.
Units in 000`tonnes
H1 of 2013-14 H1 of 2014-15 Growth in
%
Hot Metal 1,993 2,002 4%
Liquid Steel 1,685 1,839 9%
Crude Steel 1,593 1,741 9%
Saleable Steel 1,462 1,478 1%

2. Research and Development is the major important part of the company which
helps to identify draw backs and promoting innovative thoughts related to
production. Research and development is presently focusing in the areas of
process improvement, waste management, new product development, cost
reduction, new technology development in RINL. The investment on R&D
during the year 2014-2015 was 33.09 Crores which works out to 0.28% of
Turnover.
R&D focuses on new technology where the employees are trained such that,
employees would cope up with the new technology.

3. Grievance redressal mechanism: A well-structured grievance handling system

is functioning for formal and informal grievances, which provide easily
accessible machinery to ensure expeditious settlement of grievances leading to
increased satisfaction, productivity and efficiency.

4. Internal Auditor: In the Company, there is a separate Internal Audit Department

which has been approved as “Internal Auditor” by the Board in terms of the

pg. 78
 provisions of Companies Act ’2013. The Internal Audit consists of experienced
charted accountants, cost and management accountants and engineers including a
system analyst.

5. Financial Performance

Particulars F.Y 2014-15 F.Y 2013-14 % Inc/(Dec)

(Crs) (Crs) previous year
Sales Turnover 11 674.66 13489.46 (13)
PBDIT 808.71 1158.75 (30)
Profit before 103.35 549.15 (81)
Tax
Profit After Tax 62.38 366.45 (83)

As most of the funds are utilized for expansion of the steel plant to fulfill its
vision the current profits are not satisfactory and even losses some times. This
expansion helps the company in future but not in current financial year.

6. Board Meetings Procedure

The Company Secretary in consultation with the Chairman-cum-Managing

Director calls for a meeting of the Board by giving not less than seven days’ notice in
writing to every Director at his address registered with the company. The Board Agenda
is circulated to the Directors well in advance.

pg. 79
7. Board Sub Committees (BSC)

The board has not only audit committee but also many other committees such as
CSR, HR committee
The Board has constituted the following Committees:

Corporate Governance

i) Audit Committee
ii) Nomination and Remuneration & Ethics/ HR Committee
iii) CSR & Sustainability Committee
iv) Stakeholders/Investors Grievance Committee.

Other Business purposes

v) Board Sub Committee on Marketing (BSCOM)
vi) Board Sub Committee on Raw Material Security and Joint Ventures & Acquisitions,
SPUs etc.,
vii) High Power Steering & Investment Proposals (Projects) Committee (HPSC)
viii) Committee of Independent Directors (COID)
ix) Committee of Management (COM)
x) Committee of Management (COM) for Share Transfers
xi) IPO Committee

8. Corporate Social Responsibilities

CSR is the basic essential responsibility of any company to look after the
environment surrounded by the company. As per Companies Act 2013, sec 135 deals
with CSR policy. It is mandatory to follow CSR policy so therefore 2% of average net
profit for the year 2014-2015 is maintained by RINL with reference to section 198 . As

pg. 80
on 31st March’2015, the Board Sub Committee on CSR & Sustainability consists of 3
members and all the three are Independent.
Directors:
1. Prof. S. K. Garg - Chairman
2. Shri A. K. Jain – Member
3. Prof. Sushil- Member

9. Provident Fund: RINL contribution paid/payable during the year to Provident Funds
are recognized in the Statement of Profit & Loss. The company’s Provident Fund Trusts
are exempted under section 17 of the Employees’ Provident Fund and Miscellaneous
Provisions Act, 1952.

10. Consolidated Financial Statements are prepared under the historical cost convention
in accordance with fundamental accounting assumptions and Generally Accepted
Accounting Principles (GAAP) in India and the relevant provisions of the Companies
Act, 2013 including Accounting Standards notified there under.

11. Fixed Assets are stated at historical cost less accumulated

depreciation/amortization.

12. Current Investments are carried al lower of cost and fair value.

13. Inventories are valued at lower of cost and net realizable value.

14. Depreciation is provided on straight line method (SLM) up to 95% of the cost of
the asset over their useful lives as in Schedule II of the Companies Act, 2013, except in
respect of the following categories of assets where their useful life is based on the
technical assessment of the Management.

pg. 81
15. IND AS are mandatory for the year 2016-2017 for both the listed and unlisted
companies whose net worth is equal or greater than 500 crores.

5.3 SUGGESTIONS

SUGGESTIONS:

Some of the Suggestions drawn from the findings of the ratio analysis for the better
performance of VSP/RINL are as follows.

pg. 82
  The liquidity Position of the firm is increasing, which is evident from the

findings. Even though the Current ratio is increasing steadily every year. It is

still far from satisfaction. As against the conventional ratio 2:1. It is still only

1.59:1. The same way the quick ratio needs to be improved further.

 Though the company has recorded very good improvement in managing the

inventories and Debtors. The firm was not able to generate the reasonable

turnover over the fixed assets. So, this calls for further improvement in the ratio,

by generating more sales.

 The company has recorded profits in the current year for the last 5 years. It is

due to the fact that vast improvement in Gross profit ratio. The company may

put some more special efforts to further consolidate its position by concentrating

on more market share.

 Another reason for the company to have the less Net Profit is, due to the increase

in its expenditure and operating expenses. The company may consider by that

efficiency can be improved further by reducing the operating expenses.

pg. 83
  The other main area where VSP has tremendous scope for improvement is in

manufacturing of value added products and concentrating on the Exports. This

will result in better sales realization and higher profit.

5.4 BIBLIOGRAPHY
BIBLOGRAPHY

1. Financial Management: Theory & Practice (4th Edition)

pg. 84
 Eugene F. Brigham and Michael C. Ehrhardt

2.Elements of Management Accounting

Leslie Chadwick

3. Principles of Corporate Finance (7th Edition)

Richard Brealey Stewart Myers

4. Accounting & Finance for Managers

Barry J. Cooper

WWW.VIZAGSTEEL.COM

pg. 85
pg. 86